So you’re considering consolidating your debts. The process seems fairly straightforward, but you might be wondering if it’s even worth it? How much money will it actually save you?
Here is some insight into how debt consolidation can help you save money each month.
Debt consolidation – what is it?
Debt consolidation is the process of combining multiple debts into a new single loan. Usually, this new loan will pay out your current debts, and you will then be responsible for repaying the new loan over a term, usually five years.
Consolidation can be a good debt solution for individuals who are struggling to get out of debt.
How debt consolidation can save you money
Managing your debt becomes easier
One of the biggest fees creditors attach to their loans is late payment fees. If you have multiple loans to manage, it can be tricky to keep up with the many payment due dates each month.
By funnelling your debts into one loan, you can budget and schedule your single periodic repayment to ensure that you make your repayments consistently on time and save on those late fees.
Late fees aren’t the only inconvenience of having multiple debts. With one loan, you only have to deal with one lender (and therefore one point of contact), and there’s only one set of paperwork to keep on top of.
That’s one regular statement, and one set of terms and conditions. So simple.
Save on interest and loan charges
Here are some more financial gains to be made by consolidating your debts. With a consolidation loan, the interest you are currently paying across all your different debts each month is consolidated into the one loan.
You’re also going to save money on other ongoing fees and charges that come with having loans. Again, one loan equals only one set of fees and charges.
Remove the other accounts to cancel out their additional costs. You can put the money you would otherwise spend on managing those debts, towards paying off your debt.
The key is to find a loan with a low-interest rate
All of the above doesn’t matter if you don’t see a loan with a relatively low-interest rate. By relatively, we mean compared to the interest rates you’re currently paying on your various debts.
The best way to calculate whether the interest rate of a consolidation loan would put you in a better financial position is to make a list of all your debts and their interest rates.
Calculate the average and compare this to the interest rate being advertised for the consolidation loans you are considering.
Debt consolidation can save you money on interest, fees and charges, and put you in a better position to make your debt repayments consistently on time, helping you become debt free sooner.